Updated: Mar 14, 2024

The Financial Planning Guide for Parents With Special Needs Children

Find out who parents can plan, financially, for their special needs child--including savings, health insurance, life insurance, and estate planning.
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Parents want to provide for their children so they can have a successful life. Some parents face a more challenging road than others, though.

Parents with a special needs child know that life may be different for their children.

The differences will depend on the specific child and their circumstances.

One significant aspect parents should consider at an early age is special needs financial planning.

You want to make sure that you can provide care for your child when they need it. Parents will have to make financial decisions that could impact their child’s financial future.

These decisions could impact their child’s eligibility for government benefits, too.

If you have a child with special needs, you’ll need to carefully consider many factors when creating a financial plan.

Here are some of the aspects to think about before getting started.

Government Programs May Help

One of the first things you should do is look into any government programs that may help with support, financially or otherwise.

Your child may qualify for Supplement Security Income (SSI) through Social Security.

They may also qualify for medical coverage and health care.

This could be through Medicaid or the Children’s Health Insurance Program (CHIP).

These programs may have financial limits. They may also have other limits your child must meet to qualify. If you do not carefully plan around these limits, your family may miss out on vital assistance.

Planning Your Family’s Finances for Success

Each family member may be impacted by the financial planning necessary for a special needs child.

Here are a few areas you may want to pay special attention to:

  • General savings
  • Life insurance
  • Health insurance
  • Estate planning

General Savings

Did you know that your child having more than $2,000 in their name could disqualify them from benefits?

It may limit their access to Medicaid or Supplemental Security Income (SSI).

Yes, this includes a savings account.

This is a shock for people not familiar with these programs.

For this reason, it’s vital to manage any savings in your child’s name. Even being a beneficiary of your assets could cause issues.

However, ABLE accounts may have different limits.

For these reasons, you may need to look into special estate planning services.

One example is a special needs trust. More on that later.

Life Insurance

Life insurance can be another critical planning tool for parents.

First, estimate how much money you need to set aside to help your child through life.

Then, you work toward saving and investing enough to reach that goal.

Unfortunately, sometimes people pass away early in life. In these circumstances, you may not have had enough time to save enough money.

Life insurance can help make sure your child has enough funds to cover their needs for life.

You can purchase different types of life insurance products to fulfill these needs.

Whole Life vs. Term Life Insurance

Whole Life Term Life
Time frame Permanent Temporary, generally 5 to 30 years
Premium level Fixed for life of the policy Fixed for the term
Cash value Yes No
Interest-bearing Yes No
Loan provision Yes No
Cost High Roughly 10% of the cost of an equivalent amount of whole life insurance
Cannot be canceled except for nonpayment Yes Yes

Term life insurance

Some people are confident in their ability to save and invest.

In these cases, a term life insurance policy is usually the cheapest option.

You can purchase a policy that covers the length of time you’ll need to invest the money necessary for your child.

Make sure you select a death benefit that will cover your child’s financial needs.

Don’t forget about any additional costs your spouse may face after you pass away, too.

If you die during the term the policy is active, then the death benefit gets paid out.

If you outlive the policy, you receive nothing. Hopefully, you will have saved enough by the time the policy expires.

Whole life insurance

Another option is whole life insurance. Whole life insurance stays in effect your entire life as long as you follow the policy and make premium payments.

This insurance is much more expensive than term life insurance. This is because the death benefit will be paid out as long as you keep up with the policy.

Whole life insurance can be viewed as forced saving.

Unfortunately, inflation eats away at the value of the death benefit payment over time.

If you invest the difference in premiums between a term and whole life insurance policy, you may end up better off.

Choosing beneficiaries

Regardless of what type of life insurance you choose, you should select beneficiaries very carefully.

You do not want to disqualify your child from receiving benefits.

For this reason, you may want to set up a special needs trust and make the trust the beneficiary.

More on that later.

Health Insurance

Depending on your child’s unique needs, health care could add up to a high cost.

Your family may get health insurance through your employer. In these cases, you may not need help with health insurance.

Sadly, not all health insurance policies are the same.

Some put higher costs on employees and their families. Others provide exceptional coverage at very low costs.

No matter what health insurance you qualify for, you should consider all of your options.

Then, you should select the option that makes the most sense for your family.

There are two other options you should look into.

These are state-run Medicaid and Children’s Health Insurance Programs.

These programs may offer lower-cost alternatives that make sense for your child.

These programs’ qualification requirements and services may vary by state. Check with your state for more details.

Estate Planning

Estate planning is something to take very seriously when you have a child with special needs.

If you need to provide care for your child for their entire life, setting up your estate planning documents is critical.

A special needs trust is an alternative to leaving a child money directly through a will or as a beneficiary on an account.

As previously mentioned, having a child as a beneficiary could disqualify them for certain services.

If you instead set up a trust controlled by a trustee, the funds can be used to care for your child without being directly held by your child.


You should also consider who would act as your child’s guardian. This is essential if you pass away before they can care for themselves.

In some cases, your child may need a guardian even if you pass away at a natural age.

Get a lawyer

It’s important to get these documents and estate planning tools set up correctly.

Laws can vary from state to state.

For this reason, you should consult an estate planning attorney. Find one that specializes in special needs situations in your area.

You may want to consult with them in combination with financial advisors, too.

Consult With a Qualified Financial Advisor

Financial planning for special needs children is challenging.

You may want to get help from a financial group that specializes in this area.

Certified Financial Planners (CFPs) have passed tests to become certified. This doesn’t mean they specialize in special needs situations, though.

Instead, you should seek out financial advisors or financial planners specializing in this particular area of planning.

Qualified advisors can help you piece together life insurance, health insurance, general savings, and your investments in the most thoughtful way possible.

Interview the pro

When interviewing financial advisors, ask what experience they have planning for other families in similar situations.

Be prepared with baseline knowledge. This way, you can tell if the advisor is trying to use the relevant terms to impress you.

They should know the government programs you may qualify for. The real key is knowing how to plan financially to maximize these benefits.

They should warn you of ways you may disqualify your child from receiving services.

These advisors should be able to refer you to estate planning attorneys.

Ideally, they have some that they regularly work with to take care of legal aspects they can’t handle.

Advisors should also know how to properly plan to accumulate assets to best benefit your child.

If you have friends with special needs children, they may have recommendations for advisors that have worked well for them.

Even so, it’s vital to vet the advisor yourself.

Finally, make sure the advisor you consult isn’t just a life insurance salesperson.

These individuals may steer you toward whole life insurance. This type of life insurance pays large commissions, even if it isn’t the best fit for you.

Instead, look for a fee-only fiduciary financial planner. These planners don’t accept commissions and must advise you based on your best interests.

Each Situation Is Different

It’s essential to understand every situation is different. Each child has their own unique needs.

You need to figure out what support your child will need throughout their life.

  • Will they be able to function on their own after the child turns 18?
  • Or will you have to provide care for them for their entire life?
  • What if you pass away unexpectedly?

The answer could drastically change how you approach financial planning.

Additionally, your financial situation and where you live also play significant factors.

Different states and localities may offer programs with terms that vary based on your location or income in that area.

Federal programs tend to be more standardized. Still, they may be impacted by your finances or other situational factors.

You need to understand how all of these programs work.

This way, you can make sure you don’t disqualify your child for benefits they may need.